A closed economy is a self-contained economic unit that has no business or trading relations with anyone outside of that unit. One advantage is less competition for domestic producers because foreign production can affect domestic production that doesn’t have the same resources or technological advances. The disadvantages are fewer goods and services, little competition and opportunities for investment and international participation.
Open economies trade with other nations; they import and export goods and services. Hence, we also call them trading nations. The advantages of the open economy is increases investment opportunities, economic growth and economic development. Disadvantages of an open economy is maintaining a closed economy is more difficult today than two hundred years ago.
Closed economies are very rare as most closed economies have evolved into open economies over time. A closed economy does not interact with other countries and prefers to be self-sufficient, which may hinder their growth. An open economy, on the other hand, is beneficial to the global economy and will result in more trade, more funding for investment, and better development of products and services.
Open economy is better than close economy
Open economy is better than close economy because ecosystem openness is good for competition in open economy. Open economy systems generate efficiencies in two ways they maximise network effects and they maximise scale economies.
